Japan Is Right, John Kerry Is Wrong: The U.S. Must Go All In On Financing Natural Gas

Japan Is Right, John Kerry Is Wrong: The U.S. Must Go All In On Financing Natural Gas

My apologies up front for going long here, but do a printout because I find this one that important.

I knew I was right.

CERAWeek last week confirmed our most fundamental energy reality: if there is anything that we’ve learned from Russia’s illegal invasion of Ukraine over the past year, it’s just how indispensable natural gas is.

Gas is the world’s go-to fuel, and energy security and affordability are finally being realized as every bit as integral as climate change considerations in our energy-climate discussion.

The timing of CERAWeek was perfect as well, as it came just days after our flagship Cheniere’s giant Sabine Pass (~5 Bcf/d) liquefied natural gas (LNG) export terminal in Louisiana celebrated its seventh year anniversary by shipping its 2,000th cargo.

Natural gas is being shown as much more than a “bridge fuel” but as a destination fuel to a clean, affordable, and reliable energy system to lower emissions while also meeting the demands of a constantly growing economy and population.

Emitting 50% less CO2 than coal and 30% less than oil, and having the unique ability to ramp up quickly to backup wind and solar power for those frequent times when the winds are still or the skies are cloudy, gas is our centerpiece energy strategy.

Germany and California offer the undeniable evidence for how a sharper focus on renewables and cutting emissions means MORE natural gas, not less.

That truth is really the “settled science” in our energy-climate discussion.

With the highest electricity prices in the world, Germany has a staggering $1.5 trillion Energiewende (energy transition) program to switch to renewables, bolstered by literally dozens of laws, mandates, and expensive subsidies to force “clean energy” into every corner of the energy complex.

Yet, as was frighteningly exposed to the world last year, Germany has still been forced to build major gas pipelines to Putin and is now engaging on an expansive LNG import terminal build-out.

In fact, with zero before the war, Germany is looking to build at least eight LNG import terminals to “get away from Putin.”

This was bound to happen because of the obvious limitations of wind and solar, which are based more on physics and inherently higher costs than “a lack of investments.”

I’m terribly afraid that we could be wasting a whole bunch of money on things that aren’t possible: “Renewable Giant NextEra: Offshore Wind Is A Poor Investment.”

Suddenly much more practical Europe (e.g., thankfully, Germany has also been signing 15- and 20-year LNG supply deals) has now declared natural gas as “green” and sustainable to encourage desperately needed investment in this irreplaceable fuel.

In green-fixated California (having the highest electricity prices in the continental U.S.), natural gas generated over 60% of the state’s power last September when a heatwave, a drought, and wildfires pushed renewables offline.

Indeed, it’s natural gas that saves the day when the effects of climate change become most acute.

Most critically, California has come nowhere close to “going green,” and it has the ultimate advantage (i.e., mild weather) to do so: “Why California Can Afford Green Energy More Than Your State.”

This is all very telling because as climate change marches on, the weather dependency problem for wind and solar will become even larger since our weather is becoming less reliable.

Not to mention that “high grading” means that the windiest and sunniest spots get picked first (the low-hanging fruit goes first), so each new renewable power farm that we add will increasingly be in areas that are less windy and less sunny.

So, the entire premise of “let’s double down on renewables and spend boat loads of money and deploy laws, mandates, and subsidies to force wind and solar into the system” has already been tried by the two areas that should be having the easiest time doing it – for decades now.

These two have completely over-stated the ability of renewables to “get us off natural gas” and even other fossil fuels.

This is the exact problem of 1) over-relying on peer-reviewed articles that nobody outside academia reads pushing studies and “models” neatfully crafted in Ivory Tower laboratories and 2) ignoring the evidence of what is actually happening in the energy marketplace.

Germany ratified the Kyoto Protocol in 2002, and California established its increasingly higher Renewable Portfolio Standard also in 2002.

Even on good days wind and solar are available 30-40% of the time, compared to closer to 90% for natural gas (Bloomberg reports that wind last July in sweltering Texas was operating at just 8% and usually below).

Want to see a real world “social license to operate” for natural gas?

Just look at the U.S. as a whole, our gas demand for electricity (“power burn”) has continued to break records, summer after summer, year after year (Figure).

We set gas power burn records in 2020, even under the destruction of Covid-19.

And our “dash to gas” has impressively also come as U.S. electricity demand has been mostly flat at around 4,000 terawatt hours for nearly 15 years.

Just imagine the natural gas that we will need when we all switch to the electric cars that can surge home power use by 50% or more!

Especially as its main competitor coal continues to get retired, I’ve already shown how gas is becoming even more impossible NOT to use.

Last summer, for instance, U.S. natural gas prices were often double or triple from where they were the previous summer, yet we were using more gas than ever.

For my nuclear friends who I respect and adore, Houston we have a problem: although Vogtle plant in Georgia did just start splitting atoms total costs are now coming in closer to $33 billion, when the original estimate was just $13 billion.

Thankfully, Japan assuming the G7 Presidency this year wants to leverage its leadership to promote gas and LNG, especially as a feedstock for clean fuels like hydrogen and ammonia and as carbon capture and storage technologies come online.

The Japan-U.S. Energy Security Dialogue talks realizes gas investment as a key to energy security.

President Biden has already promised a lot of U.S. LNG for our allies to buffer Putin (FYI: the EU is still funding Putin’s war via major LNG purchases).

It’s mind boggling then that Sen. Dan Sullivan (R-Alaska) recently accused U.S. Climate Envoy John Kerry of telling foreign governments NOT to buy U.S. LNG.

Say what? Surely the boss told Mr. Kerry that this would be the ultimate gift to Putin and his rapidly expanding Gas Exporting Countries Forum.

This isn’t the first time though that Mr. Kerry has come after America’s boon of natural gas: “Biden’s climate envoy sentences natural gas to death in a decade or less.”

This $250 million man is pushing a “keep poor people poor” agenda that even rich nations with low incremental energy needs like Japan have been forced to confront.

Mr. Kerry’s approach is a direct threat to human development because gas is a modern fuel in a world where billions of humans still unacceptably use dangerous biomass.

What’s even more frustrating and hypocritical is that Mr. Kerry’s own state of Massachusetts used natural gas to generate 75% of its electricity in 2022: “Elizabeth Warren’s Massachusetts Loves Natural Gas.”

In a world where 6 in every 7 humans live in still developing countries, and those that will gain another 2 billion people over the next 30 years, and today having electricity use rates that we had back in the 1930s, and crushed by an “electricity access” definition from the all-important International Energy Agency that has statistically been proven to be way, way too low, it’s completely unfair to deny poor people the very resource that has become the developed West’s own emerging resource: natural gas.

Those of us worried about climate change must remain vigilant against these hypocritical anti-gasers.

Without gas, we know countries turn to coal, not renewables, not nuclear.

Lest we forget that much higher emission coal still generates some 37% of all global electricity, namely in the still developing Asian countries.

Just last year, China approved the equivalent of two coal plants a week, particularly because of the West’s years long hesitation to approve gas export infrastructure (especially among countries within the EU) that is making gas artificially too expensive.

Indeed, Bloomberg reports that a whopping 25,000 MW of India’s gas-fired capacity has been lying underutilized for years because it can’t get access to gas.

And high gas prices and lack of supply even had Germany utilizing coal for 33% of its power in 2022. Talk about Europe’s over-hyped “phase-out” of fossil fuels.

Our climate and security mission therefore is to encourage the coal-to-gas switch like we have done in the U.S., lowering CO2 emissions the fastest of any country in history.

The U.S. is also now the largest LNG supplier, and in 2022, we completed 45 long-term contracts to sell our gas overseas, up from just 17 in the previous two years combined.

After 2025, LNG demand is set to explode, so we must prepare now with a raft of final investment decisions approved this year and next to export LNG.

WoodMac says that we could see some $100 billion in new U.S. LNG export projects over the next five years.

I’m in the price space everyday, and I can assure you that the “blame LNG” story for high U.S. natural gas prices last year was never a logical one.

We’ve kept exporting record but flat levels of LNG (we have seven terminals) to help Europe break free of Russia since U.S. gas prices were $10 back in August until now when prices collapsed to below $2 just two weeks ago (Figure).

Without the LNG export valve, our drillers could dangerously be forced to cut back production, a supply system that has already been burdened by high interest rates, historic inflation, supply chain issues, and many Democrats demanding that they cut output (even as demand is rising!) to “fight climate change.”

These are urgent times.

A mild winter saved us and our allies but next year and the years after may bring deathly cold weather and unaffordable prices.

Lower prices this year have already drastically lifted gas demand forecasts for the EU, China, and India, at the expense of coal consumption.

We require a reliable, affordable, and clean power system or our electrification climate goals have no chance of panning out (ask experts in California).

Japan is right: the U.S. Export-Import Bank must go all in on financing gas infrastructure around the world.

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